Refund anticipation loans could become endangered species

Regulatory actions are making refund anticipation loans harder to come by for customers that want them. Banks are under increasing regulatory pressure from the government not to fund the loans, which makes it harder for businesses that offer them to secure the credit. Consumer supports have been opposed these loans for some time. It is said they are very detrimental to consumers.

Tax preparers running out of options for financing

The legal underwriting needs for tax refund loan programs are becoming harder to meet making it hard for H&R Block and Jackson Hewitt, along with other tax preparation services, to discover financing. HSBC was forced by the Office of the Comptroller of the Currency to close its program financing H&R Block. This caused H&R Block to shut down its refund anticipation loan program, the Washington Post reports. The loss of that product causes H&R Block to lose a ton of money in a three month period ending January 31. The business, according to NPR, lost $12 million. In April 2010, Chase stopped financing short term loans for tax refunds.

Change in IRS rule brings loan product to a halt

The Internal Revenue Service had a rule that let a person's tax refund status be checked by a refund anticipation loan creditor. This is what really hurt things. That law was repealed past year, and the belief that a financial institution might not check on the borrower’s credit worthiness meant that legally mandated underwriting needs cannot be met. This year, there were Refund anticipation loans offered in the River City Bank and Republic Bank and Trust in Louisville, Ky. The Ohio Valley Bank in Gallipolis, Ohio also offered them. At the end of this tax season, both River City Bank and Ohio Valley Bank are planning on leaving the market. That means that there can be only one bank that offers them in the whole nation soon.

What you should learn about refund anticipation loans

refund anticipation loans are fairly simple. Someone goes to a tax preparation service to have taxes done. This consists of Jackson-Hewitt and H&R Block. If they are due an income tax refund, they can take out loans against their refunds. Usually, a fee of about $65 and the amount of the refund could be taken out. These are very much like payday loans. They’re loans against future earnings for several to use. There’s a fee and penalties on the loans, just like payday loans, while there is no credit check. Low-income places will get the loans more than others which get a lot of criticism. However, most people who take the loans have a pressing need for cash and don’t want to wait.

Citations

NPR

npr.org/templates/story/story.php?storyId=134403451

Washington Post

washingtonpost.com/capital_business/2011/03/25/AFNQJVkB_story.html